Market Commentary | Market Optimistic Despite Turkey Events

Global stocks were mixed on Monday, but cautious optimism overshadowed geopolitical uncertainty in Turkey after last week’s failed coup attempt. The safe haven flows which characterized the immediate aftermath of the coup were reversed – gold retreated and US bond yields rose.

Crude oil fell as news that Russian and Iraqi oil would not have their vital Turkish-Mediterranean passageway disrupted by the failed coup. The Turkish Lira also made up some of the lost ground after last Friday’s event but stocks in Istanbul fell heavily, as did Turkey’s benchmark 10-year bonds which hit a monthly high of 9.66%.

The post-coup crackdown, with arrests topping 6,000 and almost 200 deaths, prompted doubts about Turkey’s place in NATO and eligibility for membership to the EU, prompting a sell-off in the benchmark bond which has rallied.

Asian and European stocks were mostly higher on Monday, and US equities hovered around recently hit record highs. A better-than-expected profit reading from Bank of America boosted optimism in the US just as the corporate earnings season comes into full swing in the coming days. The trading gains come on the back of a dismal quarter for the top five banks in the US, and mirror results at JPMorgan Chase and Citigroup which reported better-than-expected earnings last week on higher fixed-income revenue and cost-cutting efforts.

ARM was by far the top performer after it surged following news that Japan’s SoftBank would be buying the UK chipmaker. On the other end of the scale, Hasbro was amongst the day’s worst performers. The toymaker declined on concerns of slower growth, also dragging down its rival Mattel albeit by a lesser margin.

SoftBank buys ARM

SoftBank Group Corp. agreed to buy ARM Holdings Plc for just over GBP 24 billion – a 43% premium on last week’s closing price. The deal is the biggest ever Japanese acquisition in Europe, and Softbank’s largest takeover to date. Indeed, ARM will account for more than a third of SoftBank’s current international holdings which also include Sprint and Alibaba.

The deal marks SoftBank’s attempt to get in front of the Internet of Things (IoT) queue. IoT is a collective term referring to the growing network of devices, vehicles and even buildings which are connected to the Internet and ultimately each other.

ARM, the world’s biggest designer of smartphone semiconductors, has some form of presence inside more than 95% of the world’s smartphones. ARM doesn’t actually manufacture semiconductors, but its designs are licensed to practically all global smartphone makers including Apple and Samsung. It has recently moved into the server space where it hopes to rival Intel.

SoftBank denied that the recent Brexit-driven fall in the British pound was the catalyst for the deal, saying the company had been following ARM “for the last 10 years” and that the time was ripe for an investment. SoftBank said it was committed to keeping top managers, ARM's headquarters and to at least double the employee headcount in Britain. UK Prime Minister Theresa May welcomed the agreement, saying the deal is a reminder that the country remained open for business.

Disclaimer:

This article was issued by Andrew Martinelli, Trader at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.